IBM Should Make AMD Opteron Chips in East Fishkill, Says Merrill Lynch

While undersupply of AMD’s chips for servers is not evident and the company is on-track to build a new foundry that will allow it to make more chips, a leading analyst firm Merrill Lynch says IBM and AMD could collaborate in order to alter the market of server MPUs.

“AMD’s Opteron processor backed by IBM’s manufacturing could remake the competitive server landscape. If IBM is willing to make the commitment to AMD, we think that Intel’s problems keeping Pentium 4 on an improving performance trajectory in the first half of 2004 could provide a competitive opening,” said Merrill Lynch.

Merrill Lynch analysts Joe Osha and Steven Milunovich in their report entitled “Can IBM help itself with AMD?” say that the Big Blue’s PowerPC server multiprocessing units have been consistently loosing market share to x86 chips primarily supplied by Intel Corp.. With that said the analysts believe that while IBM’s manufacturing of AMD’s x86-64 Opteron chips may undermine IBM’s HPC PowerPC strategy, from strategic standpoint such a situation is more positive for IBM compared to Intel’s continuous strengthening.

IBM’s foundry business has been pretty successful so far and the East Fishkill, New York, fab was allocated pretty densely. Additionally, AMD itself expressed doubts that its Fab 36 will be 100% utilized when operational and suggested that it could manufacture certain products for other companies.

Equipment installed into Fab 36 in Dresden, Germany will be similar to what IBM plans to use with its 65nm process technology. Fabrications technologies from 65nm and beyond are claimed to be co-develop by IBM and AMD. Similar equipment and technologies will allow AMD and IBM to enhance manufacturing capabilities of each other in future, but it is unclear whether the two companies will have any need for such collaboration.